HE 

N5 


i  D      ^  c 


The  Apportionment  of  Traffic 


AMONG  COMPETING  RAILROADS 


AS  A  MEANS  OF  MAINTAINING  RATES, 


By  JOSEPH  NIMMO,  Jr., 


December  15,  1892, 


Together  with  a  statement  upon  the  same  subject, 
from  his  report  on  The  Internal  Commerce  of 
the  United  States,  as  Chief  of  the  Bureau  of 
Statistics,  submitted  to  the  Secretary  of  the 
Treasury,  January,  1885. 


NOTICE. 


T  earnestly  request  that  each  pei-son  to  whom  this 
document  may  he  sent  ivill,  if  convefiient^  offer  me 
some  criticism  upon   it, 

JOSEPH  XIMMO,  Jr., 
1831  F  Street, 

Washington,  J>.  C 


The  Apportionment  of  Traffic 


AMONG  COMPETING  RAILROADS 


AS  A  MEANS  OF  MAINTAICflNG  RATES, 


By  JOSEPH  NIMMO,  Jr., 


December  15,  1892, 

Together   with   a   statement  upon  the  same  subject, 

from    his    report   on    The    Internal    Commerce    of 

the    United    States,    as    Chief   of    the    Bureau    of 

Statistics,    submitted    to    the     Secretary    of    the 

gjf  Treasury,  January,  1885. 


washington,  d.  c.  : 

Gibson  Bkos.,  Pbintebs  and  Bookbindeb*. 

1892, 


IXTRODIJCXORY     NOTICE:. 


During  the  last  two  years  I  have  received  many  re- 
quests from  students  of  the  railroad  problem,  journalists, 
legislators,  and  persons  interested  in  transportation 
affairs  for  copies  of  my  views  upon  the  ''  pooling  "  or 
apportionment  of  competitive  traffic,  as  presented  in  my 
report  on  the  Internal  Commerce  of  the  United  States, 
published  in  the  month  of  January,  1885. 

Eecently  the  Interstate  Commerce  Commission  has 
asked  me  for  my  present  views  upon  the  same  subject. 
My  report  for  the  year  1885  has  long  since  been  out  of 
print.  I  have  concluded,  therefore,  to  republish  the 
chapter  of  that  report  in  regard  to  Railroad  Associations 
and  the  xlpportionment  of  Competitive  Traffic,  together 
with  an  expression  of  my  present  views  upon  that  subject. 

JOSEPH  NIMMO,  Jk. 

No.  1831  F  Street, 

Washington,  D.  C,  Dec.  \htfi,  1892. 


.64493 


THE  APPORTIONMENT  OF  TRAFFIC  AMONG 
COMPETING  RAILROADS. 


^^  .Th;3,G>iapter.onR£.ilroad  Federations  and  the  Apportion- 
toeiii^ol^Gmp^titiva  Traffic,  herewith  republished  from  mv 
official  report  on  the  Internal  Commerce  of  the  United 
States  for  the  year  1885,  constitutes  a  part  of  the  results 
of  an  investigation  of  the  commercial  interests  of  the  coun- 
try and  of  writing  reports  upon  that  subject  during  the 
period  from  1875  to  1885.  In  the  course  of  that  investiga- 
tion I  carefully  considered  every  objection  to  "  pooling,"  so 
called,  of  which  I  covild  conceive  or  which  was  brought  to 
my  attention  by  other  students  of  the  subject.  I  also  chal- 
lenged every  prominent  advocate  of  the  expedient  to  a 
proof  of  all  that  he  claimed  for  it.  Finally,  as  the  result 
of  such  inquiries,  relating  not  only  to  the  commercial  and 
economic  aspects  of  the  question,  but  also  to  its  merits 
from  the  point  of  view  of  public  policy,  I  was  forced  to 
the  conclusion  that  agreements  as  to  the  division  of  com- 
petitive traffic  for  the  specific  purpose  of  maintaining 
agreements  as  to  rates  between  competing  lines  were  in  the 
nature  of  self-restraint;  also  that  they  had  served  the  pur- 
pose of  correcting  certain  flagrant  evils  in  the  conduct  of 
transportation  by  rail.  These  conclusions  were  reached  two 
years  before  the  passage  of  the  Act  to  Regulate  Commerce. 
As  an  officer  of  the  Government,  I  did  not  at  that  time 
feel  entirely  justified  in  recommending  the  legalization  of 
the  apportionment  of  competitive  traffic,  preferring  to 
await  the  developments  of  experience.  A  somewhat  care- 
ful observation  of  the  course  of  events  during  the  last  eight 
years  has,  however,  not  only  verified  the  conclusions 
which  I  reached  in  the  year  1885,  but  has  forced    upon 


me  the  conviction  that  agreements  as  to  the  division  of 
traffic  among  competing  lines  lie  at  the  very  foundation 
of  order  in  the  conduct  of  the  internal  commerce  of  the 
country,  and  that  such  agreements  are,  besides,  essential 
to  the  successful  administration  of  the  Act.  to  Regulate 
Commerce. 

There  appear  to  be  but  two  fundamental  questions  to  be 
considered  by  any  person  who  sincerely  desires  to^reach 
a  right  conclusion  upon  this  important  matter,  viewing  it 
solely  in  the  light  of  the  public  interests.  Those  ques- 
tions are  : 

First.  Are  combinations  for  the  purpose  of  restraining 
the  full  force  of  competitive  struggles  in  commercial  and 
industrial  pursuits  in  any  case  justifiable  upon  consider- 
ations of  public  policy? 

Secotid.  Should  agreements  as  to  the  pooling  or  division 
of  traffic  for  the  maintenance  of  rates  among  competing 
railroads  be  regarded  as  in  the  nature  of  just  and  benefi- 
cent combinations  ? 

It  is  too  late  in  the  day  to  spend  much  time  in  debat- 
ing the  first  of  these  questions.  The  evolution  of  the  com- 
mercial and  industrial  enterprises  of  the  age  constitutes  its 
full  and  complete  answer.  Our  country  is  to-da}^  on  all 
sides,  confronted  b}'  combinations  for  good  and  combina- 
tions for  evil ;  by  combinations  which  protect  competition 
and  promote  progress,  and  by  combinations  which  stifle  com- 
petition and  arrest  progress.  The  very  intensity  of  hu- 
man activity  in  commerce,  in  industrial  pursuits,  and  in 
transportation  have  compelled  certain  restraints  through 
combination,  the  necessity  for  which  and  the  beneficent 
character  of  which  have  been  clearly  proved  by  the  lessons 
of  experience.  Combination  is  the  most  pronounced 
symptom  of  our  civilization.  By  it  the  largest  results  in 
science,  in  art,  in  trade,  in  education,  and  in  religion  are 


6 

being  evoked.  Combination  shields  capital  and  draws  it 
out  into  active  employment,  and  it  also  protects  labor 
against  itself  and  against  capital. 

Besides  all  this,  the  jurisprudence  of  Great  Britain  and 
of  the  United  States  clearly  sustain  restraints  upon  de- 
structive competition.  This  is  no  new  doctrine  of  the  law. 
In  the  case  of  Mitchell  v.  Reynolds,  decided  about  the 
year  1-711,  and  reported  in  "  Smith's  Leading  Cases,"  the 
policy  of  the  law  of  England  at  that  time  is  stated  as  fol- 
lows : 

' '  The  present  doctrine  is  that  while  contracts  in  total  restraint  of 
trade  are  void,  yet  if  the  restraints  imposed  be  partial,  reasonable,  and 
founded  on  good  consideration,  they  are  valid  and  will  be  enforced." 

I  believe  there  is  nothing  in  English  or  in  American 
jurisprudence  which  conflicts  with  that  doctrine. 

I  turn,  therefore,  to  the  second  of  the  test  questions  above 
propounded,  viz  :  Should  agreements  as  to  the  pooling  or 
division  of  traffic  for  the  maintenance  of  rates  among 
competing  railroads  he  regarded  as  in  the  nature  of  just 
and  beneficent  combinations  f  My  answer  to  this  question 
is  in  part  embraced  in  the  extract  from  my  report  on  In- 
ternal Commerce  for  the  year  1885,  which  these  statements 
preface. 

The  reasons  there  adduced!  in  favor  of  the  legitimacy  of 
agreements  in  regard  to  the  division  of  traffic  for  the 
purpose  of  maintaining  rates  are  based  upon  the  following 
considerations :  first,  the  physical  infirmity  of  the  rail- 
road which  prevents  it  from  ever  becoming  a  free  highway 
of  commerce  ;  and,  second,  the  fact  that  the  evolution  of  the 
American  Railroad  System,  with  all  its  dependent  relation- 
sliips,  compelled  the  adoption  of  administrative  methods 
which  lacked  the  conservative  influence  of  that  caution 
which  attaches  to  ownership  and  to  personal  responsi- 
bility for  results. 


But  there  is  a  third  and  much  more  cogent  reason  why 
agreements  as  to  the  share  of  competitive  traffic  should  be 
legaUzed.  It  is  a  reason  which  emerges  from  the  over- 
shadowing fact  that  the  evolution  of  the  American  Kailroad 
System  has  begotten  a  competition  of  commercial  forces 
vastly  more  potential  than  any  power  which  the  railroads 
of  the  country  can  exercise,  either  singly  or  through  any 
possible  form  of  combination.  The  railroad  managers  of 
the  country  foresaw  the  loss  of  independence  and  of  power 
which  was  involved  in  the  formation  of  the  American 
Railroad  System,  and  they  opposed  every  step  toward  that 
loss  of  power  until  opposition  was  seen  to  be  useless. 
The  tendency  toward  a  substantial  union  of  American  Rail- 
roads was  irresistible.  The  economies  of  transportation 
and  the  needs  of  the  commercial  and  industrial  develop- 
ment of  the  country  tended  strongly  in  that  direction. 
Connected  tracks,  a  common  gauge,  union  depots,  through 
rates,  the  classification  of  commodities,  rate  agreements, 
prorating,  through  tickets,  related  time  schedules,  the  un- 
impeded passage  of  freight,  passenger,  express,  and  postal 
cars,  and  of  locomotives  over  the  tracks  of  different  com- 
panies, and  to  a  considerable  extent  the  employment  of 
operatives  on  the  lines  of  different  companies — all  these 
co-operative  arrangements  came  about  in  spite  of  every 
effort  to  preserve  the  autonony  of  different  railroads  as  in- 
dependent factors  in  the  great  work  of  internal  commerce. 
This  wonderful  economic  and  commercial  evolution  was 
fully  recognized  and  legalized  in  the  act  of  June  15,  1866. 
That  act,  the  most  important  concerning  the  internal  com- 
merce of  the  United  States  which  has  ever  been  enacted 
by  Congress,  reads  as  follows  : 


8 

AN  ACT  to  Facilitate  Commercial,  Postal,  and  Military  Communication 
among  the  States, 

Whereas,  the  Constitution  of  the  United  States  confers  upon  Congress, 
in  express  terms,  the  power  to  regulate  commerce  among  the  several 
States,  to  establish  post  roads,  and  to  raise  and  support  armies :  there- 
fore. 

Be  it  enacted  hy  the  Senate  and  Houne  of  Representatima  of  the  United 
States  in  Congress  assembled,  That  every  railroad  company  in  the  United 
States  whose  road  is  operated  by  steam,  its  successors  and  assigns,  be, 
and  is  hereby,  authorized  to  carry  upon  and  over  its  road,  boats,  bridges, 
and  ferries  all  passengers,  troops,  Government  supplies,  mails,  freight, 
and  property  on  their  way  from  any  State  to  another  State,  and  to  re- 
ceive compensation  therefor,  aj;id  to  connect  with  roads  of  other  States, 
so  as  to  form  continuous  lines  for  the  transportation  of  the  same  to  the 
place  of  destination.     *     *     * 

Section  2.  And  be  it  further  enacted,  That  Congress  may  at  any  time 
alter,  amend,  or  repeal  this  act. 

This  act  of  Congress  constitutes  essentially  The  Charter 
OF  THE  American  Railroad  System. 

Furthermore,  all  that  is  involved  in  this  vast  system  of 
transportation  in  the  nature  of  co-operation  is  sustained 
and,  with  respect  to  freight  traffic,  made  obligatory  upon 
the  companies  by  the  provisions  of  section  7  of  the  Act  to 
Regulate  Commerce.     This  section  reads  as  follows  : 

That  it  shall  be  unlawful  for  any  common  carrier  subject  to  the  pro- 
visions of  this  act  to  enter  into  any  combination,  contract,  or  agreement, 
expressed  or  implied,  to  prevent,  by  change  of  time  schedule,  carriage 
in  different  cars,  or  by  other  means  or  devices,  the  carriage  of  freight 
from  being  continuous  from  the  place  of  shipment  to  the  place  of  des- 
tination ;  and  no  break  of  bulk,  stoppage,  or  interruption  made  by  such 
carrier  shall  prevent  the  carriage  of  freights  from  being  and  being 
treated  as  one  continuous  carriage  from  the  place  of  shipment  to  the  place 
of  destination,  unless  such  break,  stoppage,  or  interruption  was  made  in 
good  faith  for  some  necessary  purpose,  and  without  any  intent  to  avoid 
or  unnecessarily  interrupt  such  continuous  carriage,  or  to  evade  any  of 
the  provisions  of  this  act. 

The  physical,  commercial,  and  financial  union  of  rail- 
road interests  has  proceeded  to  that  point  at  which  the 


9 

entire  American  Eailroacl  System   must  be  regarded  as 
"  many  members  but  one  body.'' 

This  wonderful  railroad  system  constitutes  the  most 
gigantic  combination  of  material  interests  that  the  world 
ever  saw — a  combination  essentially  in  the  public  interest, 
formed  not  by  the  volition  of  those  who  control  its  con- 
stituent elements,  but  by  an  overshadowing  compulsion 
of  circumstance  which  forced  those  elements  into  union. 

The  most  important  result  secured  by  the  formation  of 
the  American  Railroad  System  was  that  it  presented  an 
opportunity  for  the  free  and  untrammeled  competition  of 
commercial  and  industrial  forces. 

Thus  it  has  come  about  that  the  commercial  and  in- 
dustrial interests  of  the  country,  which  many  times  exceed 
the  interests  of  transportation,  in  point  of  capital  invested, 
have  secured  a  complete  mastery  over  the  latter.  The 
unforeseen  and  most  portentous  outcome  of  this  wonderful 
commercial  development  is  the  fact  that  men  engaged  in 
commercial  pursuits  and  in  productive  industries,  seeing 
the  advantages  which  this  condition  of  affairs  opened 
up  to  them,  have  united  in  trusts  and  in  combinations  of 
various  sorts,  some  of  which  are  in  restraint  of  the  free- 
dom of  trade  and  of  industry,  and  unmistakably  and 
flagrantly  in  the  nature  of  monopolies. 

Thus  trusts  and  monopolistic  combinations  not  only  in- 
terfere with  the  inalienable  right  of  all  men  to  live  and 
labor  in  an  open  field  and  in  a  pure  atmosphere,  in  the 
prosecution  of  commercial  enterprise,  but  they  also 
demoralize  and  oppress  the  transportation  interests  of  the 
country.  These  trusts  sometimes  combine  so  as  to  throw 
their  shipments  upon  one  road  or  another  in  such  man- 
ner as  to  baffle  railroad  managers  and  to  produce  out- 
rageously unjust  discriminations.     The  value  of  the  com- 


10 

modities  carried  by  rail  each  year  is  at  least  three  times 
the  value  of  the  entire  railroad  property  of  the  country, 
and  thirty  times  the  annual  gross  earnings  of  all  the  rail- 
roads of  the  country.  This  clearly  exhibits  the  enormous 
preponderance  of  the  forces  of  trade  over  those  of  trans- 
portation, and  it  also  suggests  the  ease  with  which  trusts 
and  combinations  of  trusts  are  able  to  thwart  the  rail- 
roads in  their  efforts  to  protect  themselves,  or  to  observe 
the  requirements  of  the  Act  to  Regulate  Commerce. 

The  evil  of  allowing  large  shippers  to  dominate  the  in- 
ternal commerce  of  the  country,  and  of  permitting  the 
railroads  to  become  parties  to  such  unjust  discriminations, 
was  first  brought  to  my  attention  by  Mr.  Albert  Fink  in 
the  year  1876,  and  is  presented  on  page  40  of  the  Ap- 
pendix to  the  First  Annual  Report  on  the  Internal  Com- 
merce of  the  United  States,  submitted  June  30,  1877. 

Just  here  it  appears  proper  to  invite  attention  to 
certain  radical  differences  between  trusts  and  monopolies 
in  trade  and  industry,  and  agreements  between  railroad 
companies  as  to  the  apportionment  of  competitive  traffic 
for  the  purpose  of  maintaining  rates  : 

1.  The  commercial  and  industrial  trust  is  formed  between 
a  select  few,  who  keep  all  the  rest  of  the  competitors  out  of 
the  combination  ;  they  then  proceed  to  break  down  all 
the  outsiders ;  whereas  a  railroad  traffic  apportionment 
must  of  necessity  embrace  aU  of  the  competitors  in  its 
provisions,  and,  besides,  it  preserves  the  weaker  lines  from 
destruction. 

2.  Again,  each  member  of  a  commercial  or  industrial 
trust  steadfastly  seeks  to  retain  his  place  inside  of  the  or- 
ganization, while  each  member  of  a  railroad  "  pool "  or 
apportionment  of  traffic  is  desirous  of  escaping  from  its 
restraints  ;  the  tendency,  in  the  absence  of  legal  sanction 
of  the  agreements  entered  into,  causing  such  associations 


11 

to  be  unstable,  and  in  many  cases  leading  to  their  disso- 
lution. 

These  are  distinctive  traits  of  radically  different  sorts  of 
combinations — the  one  in  the  nature  of  monopoly  and  in 
restraint  of  wholesome  competition,  and  the  other  in  the 
nature  of  restraint  of  monopoly  and  protective  of  whole- 
some competition. 

At  the  present  time  agreements  as  to  the  apportionment 
of  competitive  traffic  constitute  the  only  known  antidote 
i,o  the  baneful  influences  which  are  exerted  over  transpor- 
tation affairs  by  commercial  trusts,  and  large  shippers. 

In  passing,  I  would  remark  that  in  my  opinion  there  is 
no  subject  which  at  this  time  so  loudly  calls  for  earnest 
and  thorough  investigation  at  the  hands  of  State  legisla- 
tures and  of  Congress  as  do  the  evils  arising  from  the 
assaults  of  illegitimate  trusts  and  other  pernicious  combi- 
nations upon  commerce,  upon  industrial  enterprise,  and 
upon  the  conduct  of  the  transportation  business  of  the 
country.  The  sole  end  and  aim  of  such  assaults,  in  so 
far  as  relates  to  the  railroads,  is  to  produce  discrimina- 
tions in  rates,  which  shall  be  for  the  benefit  of  the  parties 
to  such  iniquitous  combinations.  The  Act  of  July  2, 1890, 
"  to  Protect  trade  and  commerce  against  unlawful  Re- 
straints and  Monopolies  "  is  especially  directed  against 
such  trusts  as  are  here  referred  to,  but  there  is  need  of 
amendments  which  shall  enable  the  courts  and  the  general 
public  more  readil}^  to  distinguish  between  combinations 
and  practices  which  are  legitimate  and  beneficial  toward 
the  public  interest,  and  such  as  are  illegitimate  and  bane- 
ful in  their  purposes  and  tendencies. 


Thus  I  have  attempted  to  show  that  in  the  evolution  of 
the  American  Railroad  System  unforeseen  and  apparently 


12 

overwhelming  difficulties  have  arisen,  which  difficulties 
are  in  some  measure  traceable  to  infirmities  of  adminis- 
tration, but  mainly  to  the  assaults  of  commercial  and  in- 
dustrial trusts  upon  the  transportation  interests  of  the 
country. 

The  result  of  this  untoward  course  of  events  has  been 
that  the  rate-making  power  has  gradually  slipjDed  from  the 
hands  of  railway  managers,  to  whom  it  is  nominally  dele- 
gated, and  that  it  has  been  remitted  to  the  more  potential 
shippers.  It  needs  no  word  of  explanation  to  prove  that 
this  is  at  once  demoralizing  to  trade,  to  industrial  enter- 
prise and  to  transportation.  Manifestly,  also,  it  is  the 
very  inspiration  of  commercial  disorder.  At  last,  for  self- 
protection  and  to  maintain  the  orderly  conduct  of  com- 
merce, the  railroad  companies  were  forced  to  enter  into 
agreements  as  to  the  maintenance  of  rates.  That  I  be- 
lieve to  be  unimpeachable  history.  The  experience  of 
railroad  managers  has  also  proved  to  them  that  such  agree- 
ments, essential  to  self-preservation  and  to  the  preserva- 
tion of  commercial  order,  can  be  maintained  only  upon  the 
basis  of  2)'i^ecedent  agreements  as  to  the  share  of  the  com- 
petitive traffic  or  of  the  receipts  therefrom  which  shall  he 
awarded  to  each  competitor.  That  I  believe,  also,  expresses 
the  logic  of  events.  I  have  been  forced  by  my  studies  of 
the  internal  commerce  of  the  United  States  to  accept 
these  conclusions  as  fundamental  law  of  railroad  trans- 
portation, and  to  maintain  that  their  practical  recognition 
is  vital  to  the  existence  and  beneficent  administration  of 
the  American  Railroad  System. 

The  first  of  the  conclusions  just  enunciated,  viz.,  the 
necessity  of  agreements  as  to  what  competitive  rates  shall 
be,  and  as  to  the  maintenance  of  such  rates,  now  com- 
mands general  public  approval.  This  fact  is  clearly 
expressed   in   the   sixth    section  of  the   Act  to  Eegulate 


13 

Commerce,  which*  section  requires  ten  days'  notice  of  ad- 
vances in  rates  and  three  days'  notice  of  reductions  in 
rates. 

The  second  of  the  conchisions  above  noted,  viz.,  that 
agreements  as  to  the  share  of  competitive  traffic  which 
shall  be  awarded  to  each  competitor  are  essential  to  the 
observance  of  the  law  touching  the  maintenance  of  rates, 
is,  to  my  mind,  simply  a  corollary  to  the  first  proposition 
as  to  the  necessity  of  agreements  in  regard  to  the  main- 
tenance of  rates,  and  I  entertain  little  doubt  that  this  view 
of  the  case  will  ere  long  be  generally  accepted.  I  do  not 
express  this  opinion  as  the  dictum  of  any  philosophy 
other  than  the  philosophy  of  practical  experience  in  the 
conduct  of  the  railroad  transportation  interests  of  the 
country,  under  enormous  difficulties,  which  in  an  imperfect 
manner  I  have  attempted  to  sketch. 

In  this  connection  it  is  with  great  pleasure  that  I  advert 
to  the  exceedingly  able  and  exhaustive  report  submitted 
to  the  Senate,  January  16,  1886,  by  the  Honorable  Shelby 
M.  Cullom,  Senator  of  the  United  States,  in  his  capacity 
as  chairman  of  the  Senate  Committee  on  Interstate  Com- 
merce. The  language  there  employed  (page  201)  by  Sen 
ator  Cullom  is  as  follows  : 

"  It  "  (?'.  6.,  the  various  forms  of  restraint  upon  competi- 
tion, as  described)  '*'  would  not  destroy  the  benefits  of  legiti- 
mate competition,  but  it  would  place  a  wholesome  restraint 
upon  reckless  competition,  and  in  that  way  lessen  unjust 
discrimination,  which  is  developed  in  its  most  objection- 
able forms  under  the  nourishing  influence  of  unrestricted 
competition.  For  these  reasons  the  committee  does  not 
deem  it  prudent  to  recommend  the  prohibition  of  pooling." 

In  his  speech  in  the  Senate  January  6,  1887,  in  opposi- 
tion to  the  fifth  section  of  the  Act  to  Regulate  Commerce, 
Senator   Piatt,  of  Connecticut,  adopted   my  nine  general 


14 

conclusions  upon  pooling  associations  as  his  conclusion  in 
regard  to  the  whole  matter.  If  I  were  to  rewrite  those 
theses  to-day  I  would  make  no  change  in  them  other  than 
to  make  them  more  emphatic,  and  to  add  that  the  lessons 
of  experience  have  proved  to  me  beyond  all  doubt  that 
agreements  as  to  the  apportionment  of  competitive  traffic 
are  so  manifestly  in  the  nature  of  self-restraint,  and  so 
essential  to  the  orderly  conduct  of  the  American  Bailway 
System,  as  to  demand  their  legalization  under  no  other 
constraints  than  those  imposed  by  the  common  law  rela- 
tive to  unreasonable  rates  and  unjust  discriminations, 
which  provisions  of  the  common  law  are  adopted  into 
and  made  a  fundamental  part  of,  the  "  Act  to  Eegulate 
Commerce." 

And  now  I  desire  to  invite  attention  to  the  exact  con- 
clusions at  which  I  arrived  in  the  year  1885  : 

1.  Agreements  as  to  the  apportionment  of  traffic  be- 
tween competing  railroads,  for  the  purpose  of  maintaining 
rates,  are  beneficial  toward  the  public  interests,  and  ought 
to  be  legalized. 

2.  The  question  as  to  whether  any  particular  agreement 
in  regard  to  the  apportionment  of  railroad  traffic  is  justi- 
fiable, upon  the  ground  of  maintaining  rates,  or  of  securing 
any  other  laudable  object,  is  one  which  might  well  be  left 
to  the  determination  of  a  national  railroad  commission. 

These  conclusions  were  reached  two  years  before  the 
Act  to  Regulate  Commerce  became  a  law,  and  when,  in  the 
language  of  a  distinguished  jurist,  I  viewed  this  whole  sub- 
ject "  with  a  mind  illuminated  by  the  sense  of  official  re- 
sponsibility." Now,  viewing  it  I  trust  with  as  sincere 
a  regard  for  the  public  interests,  I  have  no  hesitancy  in 
saying  that  my  confidence  in  the  intelligent  judgment  and 
patriotic  impulse  of  the  gentlemen  who  constitute  the 
Interstate  Commerce  Commission  leads  me  to  the  belief 


15 

that  it  would  be  well  to  confide  to  that  body  the  responsi 
bilitj  of  determining  whether  any  particular  agreement  as 
to  the   division  of  competitive   traffic  is  or  is  not  charac- 
terized by  the  conditions  above  mentioned  as  constituting 
the  essential  requisites  of  legality. 

Attention  is  now  invited  to  the  views  expressed  by  me 
in  the  following  official  statement  published  in  the  month 
of  January,  1885. 


Railway  Federations  and  the  Apportionment 
of  t  ompetitive  Traffic. 


From  the  Annual  Report  on  the  Internal  Commerce  of  the  United  States, 
submitted  January,  1885,  by  Joseph  Nimmo.  Jr. ,  Chief  of  the 
Bureau  of  Statistics. 


The  general  conditions  involved  in  the  so-called  railroad 
problem  and  certain  of  the  more  general  characteristics  of 
the  railroad  system  of  the  United  States  were  described  in 
the  report  of  this  office  on  internal  commerce  for  the  year 
1880.  While  the  general  views  and  statements  of  facts 
then  presented  are  still  adhered  to,  the  subject  has  some- 
what advanced  and  assumed  new  phases,  as  the  result  of 
changes  which  have  taken  place  during  the  last  four  years 
in  the  commercial  and  transportation  interests  of  the 
country.  Such  changes  have  been  largely  the  result  of 
the  extension  of  railroads.  The  total  railroad  mileage  of 
the  United  States  increased  from  86,499  miles  at  the  be- 
ginning of  the  year  1880  to  121,992  miles  at  the  beginning 
of  the  year  1884. 

In  the  year  1880  there  were  but  two  railroad  companies 
engaged  in  transcontinental  transportation,  the  Union 
Pacilic  and  the  Central  Pacific.  These  companies  were 
not  competitors  but  coadjutors.  Now  there  are  eleven 
railroad  companies  competing  sharpl^j  for  a  share  of  the 
transcontinental  traffic.  Besides,  new  lines  have  been  put 
in  operation  as  competitors  for  the  great  traffic  between 
the  Western  and  Northwestern  States  of  the  interior  and 
the  Atlantic  seaboard  States,  and  the  conditions  governing 


17 

transportation  between  these  two  sections  of  the  country 
have  been  in  important  respects  changed  during  the  last 
four  years. 

The  fact  that  the  raih'oad  is  an  avenue  of  commerce,  the 
pathway  of  which  is  no  wider  than  the  wheel  of  the  vehi- 
cle which  moves  upon  it,  at  the  very  outset  forbade  that 
it  should  become  in  the  ordinary  sense  a  free  highway. 
As  already  observed,  it  was  inevitable  from  the  very  be- 
ginning that  the  charges  imposed  for  transportation 
services  upon  it  must  be  determined  by  a  central  authority, 
and  not  by  the  natural  workings  of  the  great  economic 
and  commercial  laws  of  supply  and  demand,  and  of 
competition.  This  disability,  if  such  it  may  be  termed, 
in  time  developed  serious  evils,  both  with  respect  to  the 
interests  of  railroad  proprietors  and  of  the  public  gen- 
erally. 

As  lines  were  extended  and  competing  roads  were  con- 
structed the  evils  inherent  in  the  railroad  system  of  the 
country  were  rapidly  developed.  At  last  the  transporta- 
tion interests  of  the  United  States  assumed  a  degree  of 
complexity  which  transcended  the  ability  of  the  most  in- 
telligent to  understand,  and  baffled  the  skill  of  the  most 
adroit  to  carry  into  execution  any  well-devised  scheme  of 
administration.  Railroad  managers  were  at  their  wit's 
end.  Wars  of  rates  prevailed  extensively  and  receipts 
from  traffic  were  greatly  reduced.  Many  railroad  com- 
panies were  seriously  embarrassed,  and  others  were  driven 
into  bankruptcy.  No  one  of  the  competitors  was  satisfied 
with  the  share  of  the  traffic  which  it  was  able  to  secure. 
At  last  it  became  apparent  to  the  more  intelligent  and  far- 
seeing  railroad  managers  of  the  country  that  they  must 
have  recourse  to  some  expedient  in  order  to  protect  them- 
selves against  themselves. 

The  precise  difficulty  appeared  to  be   that  as  raih'oad 


18 

lines  were  extended  and  competition  among  them  developed, 
the  vitally  important  matter  of  determining  rates  was  from 
the  force  of  circumstances  committed  to  soliciting  agents 
in  all  parts  of  the  country,  a  class  of  men  who  were  neither 
amenable  to  the  caution  which  attaches  to  ownership  nor 
moved  in  their  acts  by  any  general  line  of  policy,  presum- 
ably at  least,  directed  to  the  object  of  conserving  the  in- 
terests of  the  corporations  by  which  they  were  employed. 

But  the  commercial  and  industrial  interests  of  the  coun- 
try suffered  from  this  state  of  affairs  more  than  did  the 
railroad  companies.  In  the  course  of  time  published 
freight  tariffs  supplied  no  information  whatever  to  the 
public  as  to  the  actual  rates  charged.  Discriminations 
as  between  shippers  under  like  conditions  became  the 
rule,  and  rate  making,  in  almost  all  cases,  a  mere  matter 
of  contrivance  as  between  individual  shippers  in  all  parts 
of  the  country,  and  an  army  of  irresponsible  soliciting 
freight  agents.  The  general  freight  agents  also  made 
special  secret  contracts  with  the  larger  shippers  as  to  the 
rates  which  they  should  pay,  and  even  for  months  in  ad- 
vance. No  shipper  knew  on  one  day  what  rates  would 
prevail  on  the  next,  nor  had  he  any  idea  what  his  com- 
petitors in  trade  were  paying  for  transportation  services. 
Thus  the  whole  matter  of  freight  charges  became  involved 
in  incertitude.  Falsehood  and  deception  were  the  rule 
and  fair  dealing  the  exception.  This  state  of  affairs  was 
utterly  demoralizing  to  trade,  for  it  was  in  contravention 
of  the  great  fundamental  law  of  commercial  ethics  that  in 
the  competitive  struggles  of  life  men  shall  be  permitted  to 
live  and  labor  in  an  open  field  and  in  a  pure  atmosphere. 
Loud  and  bitter  complaints  arose  on  account  of  the  out- 
rageous discriminations  made  in  rates. 

A  more  serious  result,  however,  arose  from  the  fact  that 
glaring  discriminations  were  made    as   between  different 


19 

localities  and  trade  centres.  For  example,  the  rates  were 
at  one  time  so  much  less  from  Boston  to  the  west  than 
from  New  York  to  the  west  that  commerce  was  turned  from 
the  latter  to  the  former  citj,  and  shipments  in  consider- 
able quantities  were  made  from  New  York  to  Chicago,  via 
Boston.  This  of  course  gave  rise  to  bitter  hostility  against 
railroad  management  generally. 

Thus,  trade  and  industry  became  demoralized  by  uncer- 
tainties which  neither  the  merchant  nor  the  manufacturer 
could  foresee,  and  against  which  they  could  not  provide. 

Occasionally  the  general  freight  agents,  or  other  officers 
having  the  management  of  the  freight  traffic  of  rival  roads, 
would  meet  together  and  agree  as  to  the  rates  which  should 
prevail ;  but  the  difficulties  inherent  in  the  system  of  rail- 
road transportation,  sooner  or  later,  rendered  null  and 
void  all  such  arrangements.  Whenever  an  agreement  as 
to  the  maintenance  of  rates  was  entered  into,  there  seemed 
always  to  be  a  mental  reservation  on  the  part  of  the  rep- 
resentative of  each  road  that  his  observance  of  the  agreed 
rate  was  conditioned  upon  the  fact  that  his  road  was  to 
secure  the  share  of  traffic  to  which  he  believed  it  to  be  en- 
titled at  each  competing  point.  It  turned  out,  therefore, 
almost  invariably,  that,  soon  after  such  agreements  were 
made,  the  soliciting  agents  of  one  or  more  of  the  compet- 
ing lines  would  resort  to  the  cutting  of  rates,  in  order  to 
make  up  a  deficiency  in  his  share  of  the  traffic,  in  conse- 
quence of  representations,  either  true  or  false,  made  by 
shippers  to  the  effect  that  offers  of  cut  rates  had  been  made 
to  them  by  the  agents  of  competing  lines.  This  was  a 
constant  source  of  demoralization.  It,  however,  consti- 
tuted a  phase  of  the  practical  workings  of  corporate 
ownership  and  management  of  railroads.  An  able  railroad 
manager  has  thus  described  the  manner  in  which,  by  the 
practical  abrogation  of  their  authority,  the  proprietors  of 


20 

railroads  lost  the  power  of  determining  what  they  should 
be  paid  for  the  services  rendered  by  them  to  the  public  : 

The  stockholders  in  the  first  place  surrender  their  control  to  a  board  of 
directors,  the  board  of  directors  surrender  it  to  the  president,  the  presi- 
dent surrenders  it  to  a  general  manager,  who  in  turn  surrenders  it  to  the 
general  freight  agents  of  his  own  and  a  great  number  of  other  roads,  who 
again  surrender  it  to  a  large  number  of  soliciting  agents,  and  finally 
these  soliciting  agents  surrender  it  to  the  shippers.  The  shippers  prac- 
tically make  their  own  rates.  The  result  is  confusion  and  demoralization 
of  traffic,  and  no  end  to  unjust  discriminations  between  shippers  and 
localities. 

In  a  word,  the  fundamental  fact  that  the  railroad  is  not, 
and  in  the  nature  of  things  cannot  be,  a  free  highway  of 
commerce,  on  which  rates  are  determined  by  competition 
among  common  carriers,  had  led  up  to  a  stage  in  the 
development  of  the  railroad  system  of  the  country  where 
it  had  gotten  beyond  all  control.  If  that  state  of  affairs 
had  continued,  all  the  railroads  would  probably  have  been 
absorbed  by,  and  districted  among,  three  or  four  great 
corporations.  But  that  would  have  been  calamitous,  for 
such  corporations  would  have  had  power  enough  and  suf- 
ficient territorial  sway  to  defeat  the  beneficent  influences 
of  the  competition  of  commercial  forces.  In  other  words, 
transportation  would  thus  have  gained  the  mastery  over 
trade. 

The  situation  prior  to  pooling  was  described  in  a  previ- 
ous report  of  this  office  in  language  which  may  here  be 
repeated  : 

During  railroad  wars  the  general  freight  agents,  or  other  executive 
officers,  upon  whom  properly  devolve  the  matter  of  determining  rates, 
invariably  remit  their  authority  to  a  great  number  of  soliciting  agents 
and  local  freight  agents  widely  scattered  in  all  parts  of  the  country ;  the 
only  order  promulgated  for  their  guidance  at  such  times  being  to  make 
any  rate  which  may  be  found  necessary  in  order  to  secure  traffic.  Al- 
though this  method  of  procedure  is  obviously  in  the  face  of  good  admin- 
istration, of  order  and  of  economy,  it  is  found  to  be  an  unavoidable  fea- 
ture of  a  war  of  rates.      During  these  struggles  success  waits  upon  in- 


21 

trigue  and  false  representations.  The  freight  agents  deceive  the 
merchants,  and  the  merchants  deceive  the  freight  agents. 

For  several  years  prior  to  the  inauguration  of  pooling  arrangements, 
the  railroad  transportation  interests  of  the  country  ran  at  loose  ends. 
The  contest,  being  carried  on  independently  of  leadership  and  without 
method,  lost  the  name  of  competition  and  ended  in  demoralization.  It 
appears  hardly  necessary  to  observe  that  such  a  contest,  involving  re- 
sults in  the  highest  degree  detrimental  to  the  interests  of  productive  in- 
dustry, of  commerce,  and  of  transportation,  had  in  it  none  of  those 
conservative  elements  of  legitimate  competition  which  attach  to  owner- 
ship and  to  personal  responsibility  for  results. 

Experience,  both  in  this  country  and  in  several  of  the  countries  of 
Europe,  seems  to  have  clearly  proved  that  the  great  beneficent  law  of 
competition  fails  to  secure  a  proper  adjustment  of  rates  between  rival 
railroads  or  combinations  of  railroads  struggling  for  a  share  of  the  traffic 
between  common  points.  This  appears  to  be  a  direct  result  of  those 
peculiarities  of  the  railroad  as  a  highway  of  commerce  which  forbid  that 
it  should  become,  in  the  ordinary  sense,  a  free  highway.  The  necessity, 
for  some  sort  of  restraint  upon  a  competition  which  uniformly  degener- 
ates into  demoralization  has  therefore  forced  itself  upon  the  attention 
both  of  railroad  managers  and  of  those  who  view  the  matter  in  the  light 
of  the  public  interests. 

The  evils  which  produced  a  general  feeling  of  discontent  and  of  ani- 
mosity against  the  raih-oads  were  not  accidental  or  abnormal,  but  inherent 
in  the  existing  system  of  railroad  management.  A  radical  remedy  was 
therefore  needed. 

It  was  of  course  impossible  that  such  an  absurd  and  de- 
structive condition  of  aftairs  should  long  continue. 

The  only  expedient  which  has  yet  been  devised  for  the 
prevention  of  the  evils  of  wars  of  rates  is  that  of  the  pool- 
ing or  apportionment  of  traffic  under  a  general  scheme  of 
the  federation  of  the  railroads.  Neither  the  National 
Government  nor  any  State  government  has  ever  proposed 
any  expedient  for  the  correction  of  the  evils  incident  to 
wars  of  rates,  and  federation  stands  therefore  at  the  pres- 
ent day  as  the  only  apparent  substitute  for  the  operation 
of  the  regulating  influence  of  the  commercial  laws  of  sup- 
ply and  demand  and  of  competition,  which  laws,  as  before 
stated,  never  have,  and  in  the  nature  of  things  never  can. 


22 

become  the  determining  principle  with  respect  to  freight 
rates  on  particular  railroads. 

The  degree  of  favor  with  which  pooling  is  now  and  has 
for  the  last  eight  years  been  regarded  in  this  country  arises 
from  the  fact  that  it  has  been  instrumental  in  correcting 
the  intolerable  evils  hereinbefore  described,  while,  at  the 
same  time,  rates  have  greatly  fallen,  and  the  internal  com- 
merce of  the  country  has  enormously  increased. 

The  railroad  managers  of  the  country  have  not  resorted 
to  pooling  voluntarily,  but  reluctantly.  From  the  begin- 
ning they  appear  not  to  have  regarded  pools  as  in  them- 
selves conditions  of  good,  but  merely  as  a  recourse  against 
evils  for  the  prevention  of  which  pooling  seemed  to  be  the 
only  available  expedient.  The  managers  of  each  line 
would  gladly  see  all  of  its  competitors  bound  together  in 
a  pooling  organization  and  itself  exempted  from  such  re- 
straint. 

The  objections  to  pooling  in  the  minds  of  railroad  man- 
agers appear  at  first  to  have  arisen  not  only  from  an  un- 
willingness to  surrender  their  power  over  rates  and  the 
power  of  determining  the  range  of  their  competitive 
struggles,  but  also  from  an  apprehension  that  such  com- 
binations would  be  likely  to  incur  public  hostility.  This 
may  be  illustrated  by  an  incident  in  the  history  of  pooling. 

For  two  or  three  years  prior  to  1874  the  four  leading 
trunk  lines  of  the  Atlantic  seaboard  States  had  been  en- 
gaged in  a  war  of  rates.  In  August  of  that  year  an  at- 
tempt was  made  to  enter  into  an  agreement  commonly 
known  at  the  time  as  the  "  Saratoga  compact."  This  agree- 
ment related  merely  to  the  maintenance  of  rates,  and  did 
not  contemplate  pooling.  The  Baltimore  and  Ohio  Kail- 
road  Company,  however,  refused  to  enter  into  the  arrange- 
ment. At  a  subsequent  meeting  (held  at  Baltimore)  of 
the  presidents  of  the  four  trunk  lines,  Mr.  Garrett,  presi- 


23 

dent  of  the  Baltimore  and  Ohio  Kailroad,  in  reply  to  the 
arguments  addressed  to  him,  said : 

If  the  four  great  tnink  lines  should  join  in  such  an  organization,  with 
the  power  which  they  could  exercise  over  connecting  lines,  it  would  be 
regarded  by  the  people  as  a  combination  against  their  interests,  and  as 
the  result  there  would  be  a  combination  of  the  people  against  the  rail- 
ways of  the  country ;  and  through  the  courts,  which  are  the  exponents 
of  the  conscience  and  interests  of  the  public,  and  through  the  repre- 
sentatives of  the  people,  in  legislatures  and  in  Congress,  hostile  action 
would  be  induced,  which  would  more  than  counterbalance  the  advan- 
tages which  would  flow  from  the  increased  rates  which  would  be  com- 
manded through  so  powerful  an  organization. 

It  is  reported  that  Mr.  Cornelius  Vanderbilt,  sr.,  presi- 
dent of  the  New  York  Central  and  Hudson  River  Rail- 
road, replied  that  in  his  opinion  there  was  much  force  in 
this  view.  At  that  time  pooling  existed  in  this  country 
only  in  a  few  cases  and  under  conditions  by  no  means 
complex.  But  to-day  almost  the  entire  railroad  system  of 
the  country  is  embraced  in  pooling  organizations. 

The  economic  view  of  submission  to  the  rule  of  a 
"  pool  "  appears  to  be  simply  this  :  The  several  contest- 
ants become  convinced  that  at  rates  which  can  be  main- 
tained by  pooling,  the  share  of  the  traffic  allotted  to  each 
road  will  yield  a  larger  net  revenue  than  could  possibly 
be  realized  by  each  from  the  share  of  the  traffic  which  it 
could  possibly  secure  in  an  unconstrained  contest  with 
his  competitors.  The  rates  which  can  be  secured  in  such 
a  contest  are  of  course  much  lower  than  pool  rates.  The 
public  know  to  what  apparent  folly  railroad  managers  re- 
sort in  lowering  both  freight  and  passenger  rates  during 
wars  of  rates.  Finally  it  was  realized  that  even  though 
by  the  terms  of  settlement  under  pooling  the  share  al- 
lotted to  any  particular  lines  might  be  considerably  less 
than  the  share  which  could  be  secured  in  a  war  of  rates, 
still  the  higher  pool  rates  would  yield  better  net  results. 


24 

But  the  experimental  knowledge  gained  from  a  war  of 
rates  appears  generally  to  be  necessary  in  order  to  lead 
railroad  managers  to  the  adoption  of  that  expedient. 
This,  however,  arises  in  the  very  nature  of  things.  Rail- 
road managers  are  usually  men  of  strong  personal  will- 
power, and  each  appears  to  assume  a  priori  that  his  line 
has  a  higher  degree  of  relative  efficiency  than  any  of  his 
rivals  are  willing  to  concede. 

Like  all  other  bargains  and  compacts  of  a  commercial 
nature,  pooling  arrangements  rest  upon  the  basis  of  en- 
lightened views  of  self-interest  gained  from  the  lessons  of 
experience. 

The  practical  utility  of  the  war  of  rates  with  respect  to 
the  interests  of  railroad  companies  appears  to  be  that  it 
determines  the  share  of  the  competitive  traffic  to  which 
each  line  is  entitled,  as  during  such  contests  rates  are 
usually  kept  about  equal  over  each  one  of  the  rival  lines. 
Latterly  in  certain  instances  the  more  astute  and  less  de- 
structive policy  of  agreeing  to  compete  for  a  stated  period 
under  equal  rates  appears  to  have  been  adopted  for  the 
purpose  of  ascertaining  the  relative  strength  of  the  several 
competing  lines.  A  notable  example  of  this  has  recently 
been  furnished  by  the  several  transcontinental  competitors 
for  the  traffic  of  California,  Oregon,  and  Washington  Ter- 
ritory, the  results  of  their  operations  under  equal  rates  for 
one  year  having  been  taken  as  the  basis  of  pooling  in  the 
future. 

Agreements  as  to  the  pooling  or  division  of  traffic  are, 
however,  but  one  of  the  features  of  pooling  organizations 
or  railroad  federations,  and  in  practice  are  found  not  to 
constitute  their  most  important  feature,  touching  the  com- 
mercial interests  of  the  country.  Suce  agreements  estab- 
lish over  their  constituent  members  a  sort  of  government 
having  general  jurisdiction  with  respect,  first,  to  the  ap- 


25 

portionment  of  traffic  ;  second,  to  the  establishment  of 
the  rates  which  shall  be  charged  for  the  carriage  of  goods 
of  the  various  classes  and  the  maintenance  of  such  rates ; 
third,  to  the  rendering  of  such  returns  either  to  each  other 
or  to  a  joint  agent,  as  may  be  aecessary,  in  order  that  the 
managers  or  each  railroad  maj  know  what  amount  of 
traffic  competing  railroads  are  carryiag  ;  fourth,  to  the 
determination  of  the  route  which  traffic  shall  take  from 
the  point  of  shipment  to  the  point  of  destination  ;  fifth, 
to  the  division  or  pro-rating  of  rates  over  the  several  roads 
on  which  freight  is  carried,  in  each  case  of  joint  service  ; 
and  sixth,  to  the  establishment  and  maintenance  of  a  uni- 
form classification  of  rates.  The  conduct  of  railroad  con- 
federations also  embraces  many  other  matters  arising  in 
the  detail  of  railroad  management,  and,  in  a  word,  it  is 
intended  that  they  shall  secure  the  orderly  conduct  of  the 
great  commercial  movements  of  the  country. 

XotwithstandiDg  the  protection  against  the  evils  of  wars 
of  rates  which  pooling  provides,  there  is  probably  not  a 
single  pooling  organization  in  this  country  which  has  not 
been  subject  to  severe  and  long-continued  revolts.  The 
great  East  and  West  Trunk  Line  Association,  embracing 
almost  all  the  main  lines  between  the  Atlantic  seaboard 
north  of  the  Potomac  and  Ohio  rivers  and  east  of  the 
Mississippi  river,  has  been  time  and  again  disturbed  by 
long-continued  wars  of  rates  among  its  members.  That 
association  is  presided  over  by  Mr.  Albert  Fink,  a  gentle- 
man of  large  practical  knowledge  of  railroad  affairs,  and 
distinguished  for  his  high  administrative  ability.  But  Mr. 
Fink  has  not  been  able  perfectly  to  compass  all  the  centri- 
fugal tendencies  of  the  great  organization  which  he  was 
mainly  instrumental  in  organizing,  and  which  from  the 
first  he  has  administered. 

The  instability  of  pooling  agreements  was  described  in 


26 

the  report  of  this  office  on  internal  commerce  for  1879,  as 
follows : 

Agreements  as  to  the  pooliiig  or  apportioument  of  traffic  are  based 
upon  the  relative  amount  of  traffic  which  each  company  may  have  been 
able  to  secure  during  a  period  of  warfare,  and  upon  a  careful  estimate  of 
the  present  ability  of  the  several  companies  to  secure  traffic. 

Apportionment  schemes  are  therefore  liable  to  disruption  as  the  result 
of  changes  materially  affecting  the  relation  of  the  several  constituent 
lines  to  each  other.  But  such  changes  are  constantly  taking  place  as  the 
result  of  the  development  of  local  or  through  traffic,  the  construction  of 
new  roads,  the  formation  of  new  combinations  and  agreements,  and 
many  other  circumstances  affecting  their  internal  conditions  and  external 
relations. 

In  conclusion,  the  following  general  observations  may 
be  made  in  regard  to  railroad  federations  or  pooling  or- 
ganizations : 

First.  They  have  been  instrumental  in  preventing  unjust 
discriminations  through  special  secret  rates  to  favored 
shippers,  and  the  consequent  demoralization  of  trade. 

Second.  They  have  prevented  many  unjust  and  ruinous 
discriminations  against  towns  and  cities,  and  against  par- 
ticular States  or  sections  of  the  country. 

Third.  They  have  put  a  stop  to  violently  fluctuating 
rates. 

Fourth.  They  have  had  the  effect  of  protecting  the 
weaker  lines  and  of  preventing  their  absorption  by  the 
stronger  lines,  and  thus  of  conserving  elements  of  com- 
petition in  transportation. 

Fifth.  By  preventing  the  absorption  of  the  weaker  by 
the  stronger  lines,  they  have  prevented  the  threatened 
danger  to  the  country  of  its  being  districted  among  a  few 
great  corporations,  by  which  means  the  regulating  influ- 
ence of  the  competition  of  trade  forces  would  have  been 
eliminated,  and  transportation  would  have  gotten  the  mas- 
tery of  trade. 


27 

Sixth.  They  have  tended  to  prevent  those  shocks  to  the 
financial  interests  of  the  country  which  generally  accom- 
pany the  bankruptcy  of  great  railroad  corporations. 

Seventh.  Since  they  have  been  adopted  the  railroad 
transportation  facilities  of  the  country  have  been  greatly 
extended.  The  volume  of  traffic  has  also  enormously  in- 
creased, and  rates  have  constantly  fallen.  These  facts 
seem  to  prove  that  railroad  federation  has  not  had  the 
effect  of  obstructing  the  beneficial  operation  of  the  over- 
ruling competition  of  trade  forces  and  of  the  direct  com- 
petition between  transportation  lines.  Statistics  herein- 
before presented  clearly  indicate  this  fact. 

Eighth.  The  most  hopeful  aspect  of  federations  for  the 
division  or  pooling  of  traffic  is  that  thereby  the  railroads 
have  been  brought  to  a  condition  in  which  their  account- 
ability to  the  public  interests  may  be  more  clearly  defined, 
and  in  which  any  departure  from  undoubted  principles  of 
right  can  be  observed  and  the  responsibility  therefor 
located.  It  is  believed  to  be  much  easier  to  regulate 
great  federations  of  railroads  with  respect  to  matters  re- 
lating to  commerce  among  the  States  than  to  regulate  a 
great  number  of  railroads  acting  independently,  for  the 
reason  that  these  federations  constitufe  concrete  expres- 
sions of  relationships  and  antagonisms  both  among  rail- 
roads and  among  trade  centres,  and  tend  to  illustrate  the 
relative  force  of  the  same. 

Ninth.  Railroad  pools  have  not  proved  to  be  rigid  com- 
pacts, but  they  have  been  constantly  subject  to  change. 
Occasional  and  even  protracted  wars  of  rates  render  their 
requirements  at  times  almost  entirely  inoperative.  This 
must,  in  the  light  of  public  interests,  be  regarded  as  a 
favorable  symptom  of  their  practical  workings.  The  con- 
ditions surrounding  and  governing  the  commercial  and 
transportation  interests  of  the  country  are  constantly  sub- 


28 

ject  to  change,  and  it  is  impracticable  that  any  fixed  rules 
or  set  of  rules  should  be  formulated  which  in  practice 
would  tend  to  prevent  such  changes. 

It  has  been  suggested  that  the  National  Government 
ought  to  recognize  pools  and  to  enforce  the  observance  of 
their  agreements.  But  their  present  unfixedness,  and  the 
many  failures  fully  to  accomplish  the  results  at  which  they 
have  aimed,  seem  to  render  such  a  step,  at  this  time,  pte- 
mature. 

Pooling  organizations  appear  always  to  occup}^  a  posi- 
tion of  unstable  equilibrium.  They  have  the  support  of 
a  sense  of  self-interest,  and  faith  in  an  administrative 
head,  but  they  lack  the  third  essential  element  of  support, 
viz.,  legal  recognition.  Their  instability  tends,  however, 
to  disarm  the  suspicion  in  the  public  mind  that  they  are 
essentially  combinations  inimical  to  the  public  interests. 

It  would  be  unwise  at  the  present  time  to  assume  that 
no  better  expedient  than  pooling  can  be  adopted  for  the 
protection  of  the  commercial,  industrial,  and  transporta- 
tion interests  of  the  country  against  the  destructive  and 
demoralizing  results  of  wars  of  rates,  or  to  assume  that 
railroad  pools  as  they  exist  to-day  are  not  susceptible  of 
such  improvements  as  would  greatly  advance  their  use- 
fulness. 

It  has  been  the  object  of  this  brief  dissertation  upon 
railroad  pooling  organizations  to  describe  them  historically 
and  in  their  practical  workings  rather  than  to  pass  judg- 
ment upon  them.  Their  relations  to  the  transportation 
and  commercial  interests  of  the  country  constitute  a  large 
and  exceedingly  important  question,  and  one  which  might 
well  engage  the  earnest  and  careful  attention  of  a  national 
railroad  commission. 


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Uaylord  Bros.,  Inc. 

Makers 

Stockton,  Calif 

MT  JAN.  21.  1908 


96^:493 


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THE  UNIVERSITY  OF  CALIFORNIA  UBRARY 


